A waning boom in U.S. crop prices will cut annual farm profits 27 percent this year from a record, potentially denting demand for Deere & Co. tractors and Monsanto chemicals, the government said.
By ALAN BJERGA
Agricultural net income will be $95.8 billion, down from a revised $130.5 billion last year, the Department of Agriculture said Tuesday in its first 2014 forecast. Income for major crops such as corn, soybeans and wheat will be $189.4 billion, down 12 percent. Expenses for feed, chemicals and other items will be $348.2 billion, down 11 percent.
Flat demand for corn to make ethanol and fewer exports to China may halt gains in farmland values after a 37 percent jump since 2009, leaving farmers with less to invest. The farm law President Barack Obama signed last week also will cut government spending on agriculture, further eroding profit.
Government subsidies to agriculture will be $6.1 billion, down 45 percent from last year. The farm bill, hailed by farmer groups as a way to better target aid toward producers during times when they need it, probably won’t add much to profit this year, said Patrick Westhoff, an agricultural economist at the University of Missouri in Columbia.
The law ends a $5 billion annual crop subsidy and relies on subsidized federal crop insurance to guard against floods, drought, pests and other risks.
“We’re looking at an era of about three, four, five years of reduced profitability in agriculture,” said Matthew Roberts, an economist at Ohio State University in Columbus. Without substantial disruptions to crop production, “by 2015, 2016, farms that expanded very rapidly over the last few years could be vulnerable, and we would see the first significant farm failures.”
The slump in the value of U.S. crops will erode prosperity in Corn Belt states, harming rural business and, if sustained, may lead to a wave of farm failures for the first time in a generation, Roberts said.
In November, the department had estimated 2013 profit at a record $131 billion, the most since 1973 when adjusted for inflation. About 2.6 million people worked on farms in 2012, according to the USDA, with 13.9 million others in food-related industries. The combined total equals 9.2 percent of the total U.S. workforce.
For 2014, livestock producers’ revenue will be $183.4 billion, up 0.7 percent from last year. Among farm expenses, animal feed, the biggest single cost, will be $52.1 billion, down 1 percent from 2013 because of the lower cost of corn. Seeds will cost $21.6 billion, up 1.5 percent.
Futures for corn, the most valuable U.S. crop, sold on the Chicago Board of Trade slumped 40 percent in 2013, the most since at least 1960, according to data compiled by Bloomberg. Soybeans, the No. 2 crop, fell 8.3 percent and wheat plunged 22 percent.
Archer Daniels Midland Co. said lower corn prices prompt farmers to hold their crop, reducing profit because the company has less to ship, chief operating officer Juan Ricardo Luciano said in a conference call last week.
Lower prices may cut tractor and combine production as much as 10 percent this quarter at Agco Corp., maker of Massey Ferguson products, chief executive officer Martin Richenhagen said last week.
U.S. loans for farm machinery are at a two-year low, the Kansas City Federal Reserve said last month. Lower crop prices will make farmland less attractive to investors and discourage farmers from seeking financing, which may hurt purchases throughout rural areas, Nathan Kauffman, an economist with the Kansas City Fed, said in an interview last week.